Marketing and Sales

How to Ride out the Inflation Storm with a Pricing Consultant

  • Richard Greenwood
  • December 19, 2022

The inflationary climate in many of the large Western economies in 2022 has forced most companies to evaluate the prices that they charge their customers as a matter of urgency. Some will have been well versed in putting prices up and acted decisively, but others, despite knowing that they ought to, haven’t successfully translated their intentions into tangible action.

To provide support to raise prices – particularly where there isn’t an established internal pricing function within the company – firms will often enlist the support of a pricing consultant. These external advisors can help companies to chart the best course of action, assess the balance of risks, and help them to then implement a pricing strategy. Furthermore, in organizations that historically have not systematically sought and achieved regular price increases, a consultant may be able to act as an impartial and honest broker, helping to mediate and overcome differences in internal opinion. 

Building pricing capability — though particularly pressing in the immediate term —  isn’t just an investment with applicability solely in times of high inflation, however. The best-performing firms understand the difference that pricing can make to the bottom line and strive to raise prices regularly, putting in place the relevant personnel and structures to monitor and improve pricing outcomes over time. 

The Impact of Inflation

The term inflation describes the rate at which prices are rising across an economy. There are multiple distinct measures of inflation, but one measure, the Consumer Price Index in the UK, showed prices growing by 11.1% in October 2022 compared with the previous year, the highest rate of annual growth for at least the past four decades. Comparably high rates of inflation have been experienced across many developed economies. This is particularly stark in comparison with recent years where low single-digit inflation has been the norm.

The current inflationary climate has arisen for multiple reasons, ranging from policy measures applied as a response to the COVID-19 pandemic to the war in Ukraine and follow-on impacts on the supply and hence the price of energy and raw materials. 

Regardless of the underlying causes, unless companies can raise their own prices in turn, they will see compressed margins, consequently making them less valuable. Indices of Producer Price Inflation (PPI), which track the prices of raw input costs faced by firms, has been especially volatile and furthermore, workers are seeking to preserve their own standards of living. The prices they pay for goods and services have risen and as a result, have bid up wage costs. 

The Value of a Pricing Consultant 

A pricing consultant can support companies in a variety of ways, from helping understand and frame options and providing analytical support, to supporting the implementation of price changes to customers. They may help with the full project lifecycle, designing and implementing a pricing strategy, or on various aspects on a more piece-by-piece basis. 

Commonly, pricing consultants will first seek to establish a fact base around current and historic pricing outcomes, also endeavoring to understand the customers and competitors, and if appropriate, build a picture of current margins across customers and products. 

They will then, based upon this, present and quantify a series of options or choices for management about potential pricing opportunities. There is always some degree of risk in changing prices, which will commonly but not exclusively be in an upwards direction. It is about placing sensible ‘bets’ on where to raise prices while seeking to maintain sales volumes.

Finally, they will develop a plan for action for implementation. This will probably be quite nuanced —  a broad brush attempt to increase prices to all customers by for example 10% might be suboptimal. There might be better ways to achieve the same overall outcome by identifying those customers with the highest willingness to pay and charging them a proportionately bigger increase. Communicating effectively with customers is paramount. If customers sufficiently value your unique offer to them, this will help you to secure price increases.

When and Why to Hire a Pricing Consultant 

A pricing consultant can often provide a range of support to companies, from analytical support to developing a practical plan to enact price changes – there is rarely a standard engagement model, and will depend on complexity and variables such as the number of customers/products/geographies covered. If earlier plans to raise prices have not yet materialized, then it may be a sound investment to call in additional pricing support. 

A pricing consultant can play a valuable role in driving change. Often an objective outsider can provide pricing managers and decision-makers with the confidence to take action. There is commonly a degree of risk aversion and internal resistance to overcome, with some participants unwilling to disrupt, as they may see it, long-standing relationships being nervous about the outcome. Companies frequently underestimate the value their customers believe they bring as a supplier and are then overly cautious as a result. 

Build Capabilities to Raise Prices 

Though pricing is a particularly pressing concern for business leaders at present, given how fast their own cost inputs are rising, considering it only now and in isolation significantly underplays its value as a lever to improve profitability. The profit impact of successfully being able to raise prices – if volume can be maintained – is exceptionally high, as any additional revenue is effectively costless, meaning it goes straight through to the bottom line.

Measuring Project Success

The success of a pricing project is ultimately in the ability to preserve and grow margins, both in percentage terms and monetary terms, though assessing the impact isn’t a perfect science and happens while other variables continue to impact the business. No one can ever know precisely what would have happened if an alternative course of action were taken. 

Often the lasting value of engaging with a pricing consultant is cultural, embedding thinking around the differential value you create for customers and then charging customers accordingly. Additionally, acting as an advocate for consistently asking for higher prices becomes contagious, as your commercial team observes success and then continues to seek better pricing outcomes into the future. 

This current year has forced companies into pricing action and while certain firms will have been better prepared than others, it will have revealed much about where each company’s pricing capabilities stand. Where these are not well developed and the value of pricing is not fully understood, then pricing consultants can prove a valuable resource upon which to call.

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